Chevron (NYSE: CVX) and Microsoft (Nasdaq: MSFT) have signed a 20-year power purchase agreement (PPA) to build a 2.67-gigawatt natural gas plant in West Texas, dedicated to powering Microsoft’s AI data centers. The deal, announced June 22, 2026, underscores the massive energy demand driven by the AI compute arms race. First electricity delivery is scheduled for 2028.
Project Kilby: A 2.67GW Co-Located Power Plant
Dubbed Project Kilby, the collaboration involves Chevron subsidiary Energy Forge One LLC and investment firm Engine No. 1. The plant will be built in modular phases, allowing capacity to scale alongside Microsoft’s data center expansion. Key equipment includes GE Vernova’s large turbines and Caterpillar’s Solar Turbines units. Once completed, it will rank among the largest co-located natural gas and data center developments in the U.S. Direct power supply ensures high reliability and reduces strain on regional grids.
Executives: Energy Is Critical for AI Transformation
“AI is reshaping the global economy, and adequate, affordable, reliable energy is key to driving this transformation,” said Chevron New Energies President Jeff Gustavson. “We bring deep natural gas resources and execution capability in the Permian Basin.” Microsoft’s President of Cloud Operations & Innovation, Noelle Walsh, added that surging AI services require rapidly scalable energy infrastructure, and this partnership secures dedicated large-scale power for advanced computing.
Economic and Environmental Impact: $10B Revenue, Water-Saving Design
Project Kilby is expected to generate over $10 billion in tax revenue for Texas and local governments and create nearly 2,000 jobs. The facility will use brackish groundwater instead of freshwater and install advanced air emission controls, including SCR systems, to minimize environmental impact. Chevron targets a final investment decision by end of 2026, aiming for mid-teen returns and diverse cash flows insulated from oil and gas price volatility.